Cement supplier ‘mega-merger’ will generate €200 million savings

Cement makers Lafarge and Holcim have announced they are to merge to produce a company with combined sales of €32 billion (£26 billion) and profits of €6.5 billion (£5.4 billion).

Under the deal, expected to go through in the first half of 2015, Holcim is making a public offer for Lafarge shares on the basis of a one-for-one exchange ratio.

The new company, LafargeHolcim, will be headquartered in Switzerland and the deal is expected to produce synergies over three years of €1.4 billion (£1.2 billion), comprising €200 million (£166 million) in savings, €200 million in capital expenditure optimisation and €1 billion (£828 million) in increased earnings. It will operate in 90 countries around the world.

Lafarge, formed in 1833 in France, is the biggest cement maker in the world and number two for aggregates, while Holcim started in 1912 in Switzerland.

Wolfgang Reitzle, a member of the Holcim board, will become chairman of the new company and Bruno Lafont, currently chairman and CEO at Lafarge, will be CEO.

Holcim chairman Rolf Soiron said: “LafargeHolcim will be uniquely positioned to take advantage of growth in developed markets and the world’s fastest growing economies by supplying the materials that will enable the construction industry to meet the challenges of the future.”

Lafont said: “The merger of Lafarge and Holcim will allow the group with strong roots in Europe to enter into a new dimension in our ambition to contribute to building better cities on a global scale and in a sustainable manner.”

However, Christian Stadler, professor of strategic management at Warwick Business School, said there were question marks over the “mega-merger”.

“I can see the logic in this merger, but there are big question marks as to whether a merger on this scale will work,” he said. “There are lots of examples of mega-mergers destroying value rather than enhancing it. A prime example comes from the car industry when Daimler and Chrysler merged. Both companies lost billions of pounds before they agreed to part again. When BP merged with Amoco in 1998 they had many problems in terms of increased complexity and duplications; it certainly affected BP’s performance for a long time.”